If you are looking to buy a new or used vehicle – or are considering refinancing – you should know how to compare auto loans offered by different lenders. There are various auto finance options, and each has specific advantages depending upon your situation.

Option 1: Bank Loan

Bank auto financing or refinancing involves dealing directly with a bank to get a loan. The bank will base its decision on various factors, including:

  • Your credit history
  • Your age
  • Your current income
  • Collateral available to secure the loan
  • Income tax returns

If the bank approves your car loan application, they will provide you with the terms of the loan, including the interest rate (sometimes called a finance charge). You will also have an opportunity to negotiate the term of the loan, or how long it will take you to pay it down.

One of the advantages of bank loans is that you can get them even before you go vehicle shopping. This helps you in two ways:

  • Helps you not go over budget when buying
  • Gives you bargaining power at the time of purchase


When it comes to refinancing, you ask the bank to give you a loan with terms that are more favorable than your existing car or truck loan.

Option 2: Finance Company

Finance companies are specialized financial institutions that provide credit for the purchase of consumer goods and services. In general, banks fall under stricter regulations than finance companies. Finance companies, therefore, can be more flexible than banks. This might be an attractive option for those with damaged credit. Otherwise, banks and finance companies operate in basically the same manner when it comes to evaluating and granting a vehicle loan or refinancing.

Option 3: Credit Union

Credit unions are member owned financial institutions that are typically based in a particular geographic area or on a certain industry. To take advantage of a credit union’s services and benefits, you will required to join and pay a membership fee. Besides that, credit unions behave very much like a banks, but with the advantage that they can offer better interest rates to their members. The car loan application process is otherwise similar to the bank lending process.

Option 4: Dealership Financing

With dealership financing, you get your car or truck loan through the car dealership. The loan contract is made between the purchaser and the dealer. Typically the dealer then sells the contract to a bank, finance company, or credit union.

This type of borrowing may be more convenient as you can purchase the car and establish financing all at the same time. The dealerships might also be able to offer you incentives with attractive interest rates. However, some of these programs may require a larger down payment.

Make Sure You Shop Around

It pays to shop around for the best rates on car financing or refinancing. Terms and rates can vary significantly between lenders. There is no penalty to your credit score as long as you make all your inquires within a 30 day period.

One of the most efficient ways to go about this process is to use an auto finance network, like CARCHEX. These services are able to compare up to 100 different lenders to find you the best rates.

About The Author


Joe Campanella is the EVP of Business Development for CARCHEX and oversees partner relationships. Joe possesses 12+ years of experience building sales/customer service teams and securing strategic partnerships. He is a sports enthusiast who enjoys mountain biking, surfing and snowboarding in his spare time.

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